Will rivals ride on pent-up demand?

The biggest problem facing the Nano may not be one of engineering but of a lack of supply. A former auto industry honcho puts it bluntly: “This was not meant to be a niche product, it is meant to be a mass-market product. To go in with limited supplies on Day 1 would end up disappointing a lot of people.”

Until the Sanand plant gets underway—by late 2009 or early 2010—Tata Motors may not be able to meet the overwhelming demand for the car. Some feel that this will give the competition a fillip. It has often been speculated that Maruti Suzuki India Limited (MSIL) could drastically cut prices of its 25-year-old Maruti 800 to give the Nano a run for its money. An air-conditioned 800 costs Rs 2.2 lakh on-road in Delhi, as against Rs 1.6 lakh that the Nano CX variant (with air conditioning) is expected to cost on-road. Even the top-end Nano LX should have an on-road price tag (including insurance, road tax and other extras) of around Rs 1.9 lakh in Delhi. Maruti officials refuse to speculate whether Maruti would cut prices of the 800.

Maruti 800 sales have been declining for the past decade; last year, the company sold close to 70,000 units, and if figures till February 2009 are anything to go by, MSIL will just about sell 50,000 units this fiscal (April 2008-March 2009). However, the company does not have the wherewithal to produce more cars, as production is overloaded at both its Gurgaon (where the 800 is produced) and the newer Manesar plants. But according to some key vendors, Maruti could cut over 10 per cent from the price of the 800 without any major modifications.

However, there might be another reason for Maruti’s reluctance to dramatically modify the 800. From April 2010, all cars sold in India will be subject to road safety tests which, while not as stringent as in the US and the European Union, might see some cars currently sold on Indian roads fail. Some in the industry feel that the 800 might not pass these tests without expensive re-engineering (something Maruti officials deny), while Tata engineers are confident in their assertion that the Nano will. In fact, senior MSIL executives privately concede that they are happier to be producing large numbers of higher-margin products such as the Swift rather than the 800.

Two-wheeler makers, however, don’t think the Nano poses a critical threat. “While the Nano will be a great way of getting a family around, most motorcycle buyers are single men; and when it comes to cost and fuel economy, a four-stroke motorcycle is still superior to a car,” says Anil Dua, Vice President, Sales and Marketing, Hero Honda.